Dynamic pricing refers to end-user prices that to a varying degree reflect the marginal network costs and/or generation costs of energy, which is normally purchased in the wholesale market.

Article 11 of the European Commission Proposal for a Directive of the European Parliament and of the Council on the internal market for electricity (recast) on common rules for the internal market in electricity (recast), 30.11.2016, COM(2016) 864 final 2016/0380 (COD)

Entitlement to a dynamic price contract

1. Member States shall ensure that every final customer is entitled, on request, to a dynamic electricity price contract by his supplier.

2. Member States shall ensure that final customers are fully informed by the suppliers of the opportunities and risks of such dynamic electricity price contract.

3. Member States, through their National Regulatory Authorities, shall monitor and report annually, for at least a ten-year period after such contracts become available, on the main developments of such contracts including market offers, the impact on consumers' bills and specifically the level of price volatility, and on consumers' sensitivity to the level of financial risk.

Article 2(11) of the European Commission Proposal for a Directive of the European Parliament and of the Council on the internal market for electricity (recast) on common rules for the internal market in electricity (recast) of 30 November 2016 (COM(2016) 864 final 2016/0380 (COD)) defines 'dynamic electricity price contract' as 'an electricity supply contract between a supplier and a final customer that reflects the price at the spot market, including at the day ahead market at intervals at least equal to the market settlement frequency'.

Dynamic pricing has many applications according to the granularity of consumption metering and the dynamic nature of Time-of-Use Tariff (ToU).

In this way dynamic pricing in the electricity market is inherently involved with smart metering.

Interesting possibilities are offered, for example, by smart meters with remote consumption control functionality, which are able to adapt the operation of specific home appliances, such as heat pumps, to hourly electricity prices, to shift consumption to lower-price periods.

There is significant variation in the penetration of dynamic pricing among household electricity consumers in Europe.

Dynamic pricing is more frequently applied in the supply of energy than in network charges.

As for gas, dynamic pricing is virtually non-existent, due to the storability of gas and, compared to electricity, the lower probability of peak prices (ACER/CEER Annual Report on the Results of Monitoring the Internal Electricity and Gas Markets in 2015, Retail Market, November 2016, p. 24).

Article 11(1) of the said European Commission Proposal of November 2016 envisions the rule that every final customer in the European Union Internal Electricity Market would be entitled, on request, to a dynamic electricity price contract by his supplier.

Moreover, Article 11(2) was proposed by the European Commission as follows:

“Member States shall ensure that final customers are fully informed by the suppliers of the opportunities and risks of such dynamic electricity price contract.”

However, the Report of the European Parliament’s Committee on Industry, Research and Energy (ITRE) of 27 February 2018 on the proposal for a directive of the European Parliament and of the Council on common rules for the internal market in electricity (recast) (COM(2016)0864 – C8-0495/2016 – 2016/0380(COD)) proposed Article 11(2) to be given the following wording:

“Member States shall ensure that final customers are fully informed by the suppliers of the opportunities and risks of such dynamic electricity price contract including the need to have an adequate electricity meter installed.”

The ITRE Committee in the aforementioned Report of 27 February 2018 also proposed the additions of paragaraphs 2a, 2b and 3a to the said Article 11 - as follows:

“2a. Every final customer shall always be required to give consent before being switched to a dynamic price contract.

2b. Member States shall aim at reducing the share of fixed components in final customers’ electricity bills.

3a. Member States shall ensure that adequate safeguards on the exposure of price changes for final customers are in place to avoid bill shocks or high levels of financial liability.”

Article 16(7) of the European Commission Proposal for a Regulation of the European Parliament and of the Council on the internal market for electricity (recast), 30.11.2016, COM(2016) 861 final 2016/0379 (COD), in turn, stipulates that where the EU Member States have implemented the deployment of smart metering systems, regulatory authorities may introduce "time differentiated network tariffs, reflecting the use of the network", in a transparent and foreseeable way for the consumer.

Furthermore, pursuant to Article 16(9)(c) of the said draft Regulation, harmonisation of time differentiated network tariffs should be a part of the recommendation provided by the European Agency for the Cooperation of Energy Regulators (ACER) to the EU Member States' national regulatory authorities regarding the progressive convergence of transmission and distribution tariff methodologies.

The policies and measures to support dynamic pricing should be described in the national climate and energy plans, the EU Member States are required to prepare under Article 3 of the Regulation of the European Parliament and of the Council on the Governance of the Energy Union.